ASX rival LCH Clearnet wants share trade monopoly scrapped

International clearing house LCH Clearnet has called on the federal government to review the Australian Securities Exchange’s monopoly over the processing of share trades as it looks to build up its business in the local market.

LCH chief
Michael Davie
flew into Australia from London on Tuesday and will hold meetings in Canberra this week, eight months after the former government blocked competition against the ASX in share trade clearing.

Mr Davie told The Australian ­Financial Review the issue should be considered as part of Treasurer
Joe Hockey
’s planned review into the financial system.

“The big question is around equities and whether we would get a licence to clear cash equities . . . in Australia," he said. “That is a bit moot at the moment because of the moratorium [on competition] . . . but I think that remains an interesting proposition for us."

In a setback for LCH’s ambitions for the Australian market, former ­Treasurer
Wayne Swan
ruled in February that the ASX could keep its monopoly over the clearing of share trades for at least the next two years. LCH, which is majority-owned by the London Stock Exchange and is one of the world’s ­biggest clearing houses, had been keen to enter the market.

“It is an attractive space depending on how we would be allowed to access it," Mr Davie said.

“We are not expecting it [the ban on competition] to be repealed before [the end of the two-year] term."

While the former government allowed the ASX to maintain a monopoly in the clearing of shares, this did not apply to derivatives. In July, the government approved a licence for LCH to clear “over the counter" derivatives in Australia and the group began processing such trades in September.

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LCH is competing directly with the ASX in this market, which launched its OTC derivatives clearing service in July.

Mr Davie said two of Australia’s major banks, ANZ Banking Group and National Australia Bank, had signed up to become LCH members, allowing them to clear trades through the group.

He said LCH saw Australia as a growth market and was hopeful that the other big banks here would join the group.

“The Australian economy compared to those in the northern hemispheres is growing at a much higher rate," he said.

OTC derivatives are securities traded between brokers off a centralised exchange.

About $18 trillion worth of Australian-dollar-denominated OTC derivatives were traded last financial year. Australia has signed a G20 commitment to move towards centralised clearing of these instruments to reduce risks, creating an opportunity for groups that can fulfil the role.

While the ASX has promoted its clearing service as the domestic alternative, Mr Davie said LCH’s advantage was its international reach.

“It is a truly international service servicing a global OTC marketplace," he said.

LCH has one full-time employee in Australia but plans to hire between 15 and 20 people as it builds its business here.